Jardine Strategics Holdings

[ghchua]

Hi donmihaihai,

The NAV of JSH is calculated base on market value of subsidiaries(read small print). NAV of JSH base on equity is above USD60.

Yes. The NAV that I quoted earlier (i.e. More than USD$40) is based on market value. As some of the underlying listed companies are trading below NAV, one could also get exposure to them by buying them individually. I think using market value to compute JSH NAV is fair in this case, unless you believe that those listed shares NAV could be unlocked one day. In this case, you might wish to buy the likes of Hong Kong Land, Mandarin Oriental, JMH, Jardine C&C etc directly. 

In this kind of company, shouldn’t one bet on the head not tail.

I think it is difficult to say which is better in this case because of the cross holdings. JSH had been tracking JMH price movements quite closely, and I believed that some in the market had been playing the JMH/JSH ratio for quite sometime. Therefore, whether you bet head or tail, it makes little difference in the long run, though JMH do dishes out a higher dividend yield historically. As for JSH shareholders, I guess if they still believed in the Jardine Group of companies, they should re-invest some or all of those proceeds back into some of these companies listed above.

[donmihaihai]

Yes. The NAV that I quoted earlier (i.e. More than USD$40) is based on market value. As some of the underlying listed companies are trading below NAV, one could also get exposure to them by buying them individually. I think using market value to compute JSH NAV is fair in this case, unless you believe that those listed shares NAV could be unlocked one day. In this case, you might wish to buy the likes of Hong Kong Land, Mandarin Oriental, JMH, Jardine C&C etc directly. 

The standard provides ways on how number is being computed so that we are able to understand each other. Certainly, the standard is not the only way to do about thing and that is what JSH is doing, ignore the standard and come out with something different and yeah of course with a small note. With you using the out of the norm NAV from JSH, I was like ok and provided the figure for the norm.

Just as you might think that NAV base on market value is appropriate, it is precisely because I think that it is unlikely that value could be unlocked via disposal related corporate action, etc that I think NAV base on equity is more appropriate. If I own shares in a company, I want to know how much resources the company has and what kind of earning the company can potentially earn going forward. How much the company or it listed subsidiaries are being valued by the market(others) doesn’t has much influence on resources and abilities to generate future earnings. But if I think the co, say JSH or some of its listed subsi is going to do pretty decent going forward, then market value determines whether I buy or not.

ghchua

 I think it is difficult to say which is better in this case because of the cross holdings. JSH had been tracking JMH price movements quite closely, and I believed that some in the market had been playing the JMH/JSH ratio for quite sometime. Therefore, whether you bet head or tail, it makes little difference in the long run, though JMH do dishes out a higher dividend yield historically.

I am not into the movement of JSH/JMH ratio and pretty much ignore it. And Jardine provide another good example of betting on the head on the long run when the company is pretty discipline on capital allocation as the bet on JSH is cut short on the cheap.

Another local example that is still being playing out is UOL eat UIC while UIC eat Singland mostly on the cheap. Singland is being eaten with shareholder unable to realise the full value. And UOL will have the longest run and benefit the most I believe.

Another example will be in its latest BH shareholder letter on BH interest in Apple via share buyback.

[ghchua]

Just as you might think that NAV base on market value is appropriate, it is precisely because I think that it is unlikely that value could be unlocked via disposal related corporate action, etc that I think NAV base on equity is more appropriate. If I own shares in a company, I want to know how much resources the company has and what kind of earning the company can potentially earn going forward. How much the company or it listed subsidiaries are being valued by the market(others) doesn’t has much influence on resources and abilities to generate future earnings. But if I think the co, say JSH or some of its listed subsi is going to do pretty decent going forward, then market value determines whether I buy or not.

I think you are viewing JSH as a company as a whole, while I am looking at it as a strategic holding company, with "strategic" stakes in various listed companies. These companies are operated independently of JSH, and has its own set of shareholders (other than JSH) and board of directors to account to. The resources and abilities of JSH to make strategic investment or divestment is based on the company itself, and not its underlying business. Which means, you cannot just total up all the resources of JSH investments and say they have great resources to generate future earnings. You cannot simply divest Hong Kong Land office properties to fund Dairy Farm working capital shortfall. Which is why I say using market value of the listed companies to compute its NAV is fair. It might not be the best way, as you have pointed out.

If you view those stakes that JSH holds as strategic investments, then basically what they are doing is just a investment holding company. They can choose to buy more or divest those stakes, which is why using market value to compute those stakes is a fair gauge. 

I am not into the movement of JSH/JMH ratio and pretty much ignore it. And Jardine provide another good example of betting on the head on the long run when the company is pretty discipline on capital allocation as the bet on JSH is cut short on the cheap.

JSH is also a pretty decent capital allocator. They have been prudent with dividends, with a scrip dividend scheme in place for as long as I could remember. They have not called shareholders for rights issue also for as long as I could remember. With JMH now taking out JSH, I guess I have set out the options earlier for JSH shareholders. The ratio is just to show that they have not lose out in terms of share price performance with respect to JMH in the long run, and now they have the option to choose to continue the journey with the other companies in the Jardine group.

[donmihaihai]

I think you are viewing JSH as a company as a whole, while I am looking at it as a strategic holding company, with "strategic" stakes in various listed companies. These companies are operated independently of JSH, and has its own set of shareholders (other than JSH) and board of directors to account to. The resources and abilities of JSH to make strategic investment or divestment is based on the company itself, and not its underlying business. Which means, you cannot just total up all the resources of JSH investments and say they have great resources to generate future earnings. You cannot simply divest Hong Kong Land office properties to fund Dairy Farm working capital shortfall. Which is why I say using market value of the listed companies to compute its NAV is fair. It might not be the best way, as you have pointed out.

If you view those stakes that JSH holds as strategic investments, then basically what they are doing is just a investment holding company. They can choose to buy more or divest those stakes, which is why using market value to compute those stakes is a fair gauge. 

With or without current acquisition, I view JMH and JSH as an almost single entity(technically not entity but group). JSH has interests in unlisted entities at JMH level via interest in JMH. and JMH has the same control(abit lower shareholding interest) over HK Land, Dairy farm, MO, Jardine C&C, etc.  The different? Legacy issues resulted in cross holding and two listed holding co.

And I view Jardine Group is being managed as a single group under the same direction with managers installed at subsi level( HK Land, Dairy farm, MO, Jardine C&C.) and has influences but not management in strategic investments(mainly those in 10% to 40% interests). My view on Astra is in-between.

My view is certainly not the norm. But this is how I see the management at holding see the group and not what I wish the group is.

With the current move, JMH = JSH.

[ongweehiang]

Did some number crunching and guesstimate of the intrinsic value of JMH. It should still be pretty undervalued (but higher debt) after this exercise.

If we expect the debt to be manageable on a group level and subsidiaries will be giving cash back to parent company to lower debt quickly, and coupled with decent dividend going forward, would JMH may still be a buy at this level?

Wonder if market is undervaluing this whole strategic exercise.

[ghchua]

If we expect the debt to be manageable on a group level and subsidiaries will be giving cash back to parent company to lower debt quickly, and coupled with decent dividend going forward, would JMH may still be a buy at this level?

Hi ongweehiang,

If you have been following the Jardine Group of companies closely throughout the years, you will notice that they have been prudent capital allocators, both at the holding companies level as well as its underlying listed companies level.

If you expect its underlying listed companies to suddenly pay out a special dividend just to reduce JMH debt quickly at holding company level, I guess you might be disappointed. This is because as I have cited above, those companies are managed independently. It cannot be the case whereby the holding company say - "Hey, I need some money.", and the underlying company will reply - "Ok, I will pay more dividends this time round".

The dividends that had been dished out by Jardine Group of companies had been progressive throughout the years, with small increases during good years and scale back during bad years. Some, like Mandarin Oriental, had even stopped paying dividends as they had been making losses.

[edragon]

Did some number crunching and guesstimate of the intrinsic value of JMH. It should still be pretty undervalued (but higher debt) after this exercise.

If we expect the debt to be manageable on a group level and subsidiaries will be giving cash back to parent company to lower debt quickly, and coupled with decent dividend going forward, would JMH may still be a buy at this level?

Wonder if market is undervaluing this whole strategic exercise.

This level = US$60.50 - 65.80 ?
What is your guesstimate value of JMH ?

[donmihaihai]

JSH is actually sitting on quite a pile of money which JMH will has unrestricted access once JSH is a 100% subsi. JMH should has a smaller pile too after spending >USD1B on share buyback. Yearly dividends from listed subsidiaries > than enough to cover interest and repayment as well.

Negative point? Jardine has weaker listed subsidiaries that might need cash injection in the future. JMH will be taking over the responsibility from JSH.

[ghchua]

JSH is actually sitting on quite a pile of money which JMH will has unrestricted access once JSH is a 100% subsi. JMH should has a smaller pile too after spending >USD1B on share buyback. Yearly dividends from listed subsidiaries > than enough to cover interest and repayment as well.

Negative point? Jardine has weaker listed subsidiaries that might need cash injection in the future. JMH will be taking over the responsibility from JSH.

I do not have the latest numbers. But from their half year results, JSH have around US$2,551 million net assets at corporate level, which should be mostly cash and liquid funds. It might seem to be a lot of money, but using market value basis NAV, cash is around 10% of those listed entities.

At consolidated level though, JSH is not in a net cash position. So, I agree with you. Some of their listed subsidiaries like Jardine C&C, Astra etc might be a bit highly geared. But Astra had been disposing assets, so I don't know whether they or Jardine C&C might need a cash call sometime in the near future. So, I don't think those cash sitting at JSH corporate level are idle money waiting for JMH to be tapped. I might be parked there for future usage.

[donmihaihai]

there is a note on financial in AR for JSH on JSH corporate cashflow, basically at JSH level and also in presentation on net debt/cash on business unit. JSH is net cash over USD2B at 1H2021. Add in interim dividends from listed subsi, should be at USD$2.5B now and close to USD$3B after receipts of year end dividends. There is no major corporation acquisition/ investment at JSH level so money is basically for JMH usage once JSH is 100% subsi. Of course, when we look at consolidated cash and debts, there are more.

Astra level has more cash because of the disposal but Jardine C & C level is the problem and Jardine C & C corporate cash flow is pretty weak. I have noted somewhere that Jardine has been quite open on a Rights at right time. MO is weak too.

I hope you understand what I am talking about especially on looking at cash at which level portion instead of consolidated cash for a holding co. with many listed subsi.